Is Your E-commerce Brand Ready For Q4

Why Q4 Can Make or Break Your Year

Q4 for fast-growing e-commerce companies can literally make or break your year. If you're a brand that does in-house fulfillment and you're a fast-growing e-commerce company, then you know this is the most stressful time of the year. There is no more stressful time than Q4. If you mess up one variable, it can be the difference of millions of dollars in sales and profit.

I lost my e-commerce company a million dollars in sales in Q4 by not being properly prepared. Don't make the same mistakes I did. Here are some tips to make sure you can actually make an extra million dollars in Q4. Let's go over the variables you should care about, and we'll give you some tips and tricks to make sure everything is dialed this Q4.

1. Purchasing: Overbuy Your Hot Sellers

Number one: purchasing. First off, it's already too late to purchase for Q4 if you're trying to optimize for best cost. But here's what we did at my previous company, and I hope it helps you in some way.

We had really hot-selling cutting boards and glasses, and we could never really predict how many we were going to sell in Q4. On our hot sellers, we would always try to purchase at least 10 to 20% over our projected sales for our cost-effective purchases from China.

What do I mean by cost-effective purchasing? This is just high-volume production at the most optimal time of the year for material cost and sea freight. In other words, it's buying the cheapest you possibly can from China at the right time. For a fast-growing e-commerce company that can't predict sales like a massive conglomerate like Walmart, Target or Home Depot, it's better to be slightly overstocked on your best sellers than understocked.

Set Up a US Supply Chain

Number two: set aside time in your year to set up your US supply chain. Back to the example of cutting boards and glasses — at my old e-commerce company, we always made sure that we had two to three sources that could manufacture these goods in the United States. It's a simple lead time issue.

Cutting board X from China costs $3. The lead time is 70 days from the time I put down the deposit, and I sell it for $29.99. Much better margins when you can get it most cost-effectively from China. If I run out of China stock and I have a US cutting board for $8 with a seven-day lead time that sells for $29.99, that's less margin, but at least I don't run out of stock, which is the most important thing in Q4.

You'd be surprised how many operators just don't even look into US inventory, because there's such a disparity between the China price and the United States price. Go look. Go try. At least see what's out there. You'd be surprised what you can manufacture in the United States.

Split Your PO Between Air and Sea Freight

Number three: what if you buy too late and international sources are your only option? Right now, it's common to ship a portion of your PO via air freight to decrease the lead time and send the rest over sea. So if you need to buy something from China but get it here fast, it's actually really common to just ship a portion of your PO via air freight and send the rest by sea.

Here's a similar example to the one above. China air freight plus my unit cost on the cutting board is $5.50, with a 25-day lead time by air. China sea freight plus my unit cost is $2.50, with a 65-day lead time. So what I would do is order 10,000 units and ship 3,000 by air in time for our Q4 sales. Then I would expect the remaining 7,000 to arrive 30 to 40 days later, when sales were really starting to ramp up.

2. Financing Your Q4 Purchases

Number two: financing. If you're a fast-growing e-commerce company, then you also know that typically your sales lull and cash low is right when you need cash in the bank for Q4 purchases. We knew this all too well — at least that's how it was for our business. We would start purchasing for Q4 in Q2, when we typically had less money in the bank.

There was one year that it was so bad, we literally had no money for our Q4 purchasing. Our credit cards were maxed out, and that's a whole other story for a whole other time. Regardless, tons of e-commerce companies run into this same problem.

Here are some tips when you're running into cash flow issues for your Q4 purchases. There are actually a lot of financing options out there: short-term bank loans, and PO financing solutions like Brex, a tech company that will help loan money to e-commerce companies.

Negotiate With Your Factories

One thing I took advantage of because of my background in sourcing and manufacturing was using my connections in China. Here's the thing: most people have never challenged their factory's 30/70 payment terms. If you've done business with them for years, you've paid them on time and you've been a good partner, you'd be surprised how willing they are to let you negotiate that.

Not only did I go and negotiate paid-on-delivery terms for these Q4 orders when we were having cash issues, but I also went to a couple of trading companies in China that I had done tons of business with before, and they financed my purchase orders directly from the factory, so that I wouldn't have to do the 30/70 payment terms. All it did was add a two to three percent markup on the cost of goods. I was totally fine with that. It solved my cash issues, I could get the goods in manufacturing, and I got them in time, cost-effectively, for Q4 selling at my highest margins.

3. Labor for In-House Fulfillment

Number three: labor. If you do in-house fulfillment — holy cow. Just to put things into perspective, the e-commerce company I was CEO of would go from about 40 to 60 employees to like 200 in Q4. It was a madhouse. Two things I learned.

Number one: you need a reliable temp labor solution where you can quickly and easily get reliable people. We've used companies like Bacon, and there are other companies out there like Veryable that do this exact thing. The problem to be aware of is that you will get some pretty sketchy people as temp laborers. We once caught a temp laborer on camera injecting drugs in the break room, and when we confronted him, we had to call the cops. There are plenty more stories I could share about temp laborers, but suffice it to say, it's going to be difficult to find temp labor that is good.

Number two: your temp laborers are only as good as your SOPs and your freaking software. Simply put, if you don't use pick, pack, ship modules in your inventory software, and you don't have clear, easy-to-use, easy-to-understand SOPs, you can't really get mad at your temp laborers for not picking things quickly. Come up with clear, written SOPs and implement an inventory system that digitizes this flow and this process. It's worth it in Q4, trust me.

4. The Intersection of Ops and Marketing

Number four, and most importantly: the intersection of ops and marketing. This is a tough one. There's always that conversation going on where the marketing person will say, “If only those ops people could get stuff out the door, I'd be able to sell more.” And then there are the ops people saying, “Those freaking marketers aren't communicating things correctly to the customers.” Here are three tips to improve the intersection between ops and marketing.

Number one: marketers, shut up. No, I'm just kidding — totally kidding.

Nail Down Your Shipping Cutoff Dates

But seriously, number one: ops, nail down your cutoff dates for all of your services, and prep this really early. What do I mean by this? Every company should know their cutoff dates for which shipping carrier methods will get the product to the customer in time for Christmas. This is a dynamic conversation between ops and marketing, and it should be communicated in a crystal-clear way to the customer.

If your discount delivery cutoff, for example, is December 19th, then your freaking website better warn the customer at checkout that if they choose this option, it will not get there in time for Christmas. You'd be surprised how often this miscommunication happens, and it's a customer service nightmare.

Audit Your Inventory

Number two: inventory audits. As difficult as this is, make sure your inventory is audited during Q4. You're specifically looking out for the things that are going out of stock that, for some reason, weren't caught in your inventory system. It just happens. And when something is sold to your customers when it's actually out of stock, it's a customer service issue — and yes, you also just overspent on advertising. It's a lot of lost money, and it damages your brand. Stay on top of your inventory management numbers and your actual numbers.

Start Q4 Marketing Early

Number three: marketing for Q4 actually starts way before Q4. Believe it or not, your ad campaigns for Q4 sales should be starting in Q3. You don't just dial up your spend to a 10 the week before Black Friday. Just like purchasing, this is a conversation that should have happened in Q2 or Q1.

5. You Won't Be Perfect, and That's Okay

Number five, and finally, guys: you just won't be perfect, and that's okay. You will underpurchase on something, and you will overpurchase on some things. It just happens. Just do the things I listed above to mitigate your risk. And don't be the person who yells at your purchaser, who in no way could have predicted the anomaly of a random SKU popping off.

I'll leave you with some advice from Mitch Sanders of Thread Wallets, from my most recent podcast, OPS Unfiltered. Thanks for watching, guys. Hopefully this was helpful in some way. Go and have a great Q4. Peace.